Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for October 5th, 2003

Can’t find anything in the news anywhere, but there was a large confirmed explosion at La Carlota military airport in Caracas an hour ago and there are reports of a second one at the largest military facility in the city Fuerte Tiuna. Will update as soon as more is known. Curious how these explosions always take place at heavily guarded facilities. Is teh Chavez Government setting things up so that tehre is no petition drive for the referendum?

Huge fires are burning at this time at Caracas’ military airport, will try to get pic off TV.

Got this picture off the TV screen. Very little information, firefighters that came to aid the military airport are being asked to leave at this time. TV says it was gasoline storage trucks that caught fire.

So far, it appears it was indeed an accident or that is the impression the Government is giving or wants to give, guess we are all tense here…….

Hugo Chavez was in his best diplomatic behavior calling those public international figures that condenmed the confiscation of Globoviison equipment by the Government “imbeciles” and “delinquents”. I wonder what the Secretary Geenral of the OAS, Roger Noriega or the Head of the Human Rights Commision are thinking about this. Or our Foreign Minister? I guess it takes one to know one.

– You are a CONATEL inspector, you do an inspection. You are done. Where do you go? Obviously to your office, to turn in the paperwork, talk to your boss, etc… Not here,. as shown by Globovision you go to the largest military base in Caracas where you meet with some people and later switch cars to go somewhere else. This is the procedure that the Government called “routine” last night…….You believe it?

Reading the Sunday’s papers, I learn that the only condition under which CONATEL can confiscate equipment is when it finds a clandestine trsnamission. Now, to call Globoviison clandestine is reaching, no? As usual the Government does the half-truths, tries to give the appearance of legalities for its actions, hiding behind gray regulations.

Lost in the noise over the Globovision affair on Friday was the case of the Catholic Church in Barquisimeto which was searched on Friday by more than fifty security and military personnel in a raid that was jointly performed by the Intelligence police, the National Guard and regional police. It all started as a false alarm that an explosive device had been placed at the church but somehow became an all out raid. It was the police that said they had a call on the bomb and they proceed to search the church, including all of the files. The cops said they had found “subversive material”, by this they mean pamphlets by a community group calling for blocking of the media bill that the Chavez administration wants approved. Where are the People’s Ombudsman and the Attorney general? Nobody knows…..

Rafael Quiroz, a Professor of Economics at Central University, who nobody can accuse of being anti-Chavez, wrote an article in today’ El Nacional (by subscription only) about Orimulsion and the Government’s decision to scale back the program. Some highlights:

–Orimulsion has become itself a source of national pride, because its conceptualization. Research, development, manufacture and commercialization are 100% Venezuelan. It is the only successful example, in the hydrocarbons area, which has flowered in Venezuelan land.

–They are pretending to change the definition of Orimulsion from “natural “bitumen” to “extra heavy oil”, with all the international implications this has. In the past, Venezuela made great efforts to demonstrate that it was a “natural bitumen” and thus not subject to the taxes imposed on oil.

–The offensive against Bitor and Orimulsion under the excuse that it is less profitable than the strategic associations, which is not true, because Bitor has a profitability of 20% has had earnings and has paid more for royalty taxes and income taxes than the Orinoco Oil belt associations, which are exempt from income taxes and have a royalty regimen under which they only pay 1% for ten years. Thus there is no apparent reason unless they want to hand out the Orinoco Oil Belt to multinationals to produced fuel oil.

Venezuelan President Hugo Chavez put forth a proposal in Caracas on Oct. 1 saying that OPEC’s price band of $22 to $28 per barrel should be raised to between $25 and $32 a barrel. Venezuelan Energy and Mines Minister Rafael Ramirez added separately that Venezuelan officials had requested that the cartel study the issue during OPEC’s recent meeting

in Vienna.

Chavez’s proposal reflects the Venezuelan government’s growing worries about its rapidly deteriorating financial situation. Oil accounts for about three-quarters of Venezuela‘s total exports, nearly 45 percent of government revenues, and about 30 percent of the gross domestic product. However, Venezuelan Central Bank Director Domingo Maza Zavala recently told aNational Assembly hearing in Caracas that fiscal revenues from oil exports have not recovered from a two-month oil strike at Petroleos deVenezuela (PDVSA),in which workers sought Chavez’s resignation. The strike fell apart at the end of January 2003.

Venezuela‘s president might have expected his proposal to generate some discussion in the oil markets and among other OPEC producers. But the oil markets barely reacted to Chavez’s call for a higher OPEC price band, and major OPEC producers like Saudi Arabia simply ignored

Chavez’s suggestion. The markets clearly no longer view Chavez as having much influence on oil prices as long as he doesn’t completely suspend Venezuelan oil production. Chavez will not do this because he needs oil revenues to survive in power.

It’s also clear that Saudi Arabian and Venezuelan geopolitical interests have diverged since their successful alliance in 1999 to drive up global prices by restoring an OPEC production quota system that Riyadh abandoned in 1986. In fact, the 4-year-old Saudi-Venezuelan alliance within OPEC is dead. One of the main reasons it’s over is that Venezuela‘s oil industry is no longer an international competitive threat to Saudi Arabia‘s commercial and geopolitical interests.

Chavez unwittingly saw to that by implementing energy policies that financially crippled PDVSA, and relegating the oil industry’s managerial autonomy to the political dictates of the Energy and Mines Ministry (MEM). One of the key policy advisers who coached Chavez on changing Venezuela‘s oil policies and legislation was Bernard Mommer, a German-born Marxist with well-established ties to the Oxford Institute for Energy Studies in England, which Saudi Arabia and other Arab oil producers and banking interests partially fund.

The Saudi Connection

Stratfor does not believe Saudi Arabia worked through individuals like Mommer to cripple Venezuela‘s oil industry and diminish the threat it posed to Saudi hegemony. This was not a conspiracy, but rather a coincidental convergence of commercial, ideological and geopolitical interests that Saudi Arabia likely quietly manipulated to advance its national interests.

For example, Saudi Arabia wants to protect its hegemony as the largest oil producer in the world, individuals like Mommer are ideologically opposed to private companies owning and controlling strategic national commodities like oil, and Venezuelans who backed Chavez have believed for decades thatforeign oil companies are interested solely in stealing Venezuela’ssub-soil resources. After all, Venezuela‘s century-long experience as an oil producer has

centered on successive governments trying to assert more control over a national oil industry that foreign oil giants like Royal Dutch Shell and the Rockefeller family’s Standard Oil (now ExxonMobil) had been developing since the start of the 20th century.

According to Stratfor sources in London with longtime consulting ties to Saudi Aramco, Saudi Arabian energy officials believed PDVSA and Venezuela was Saudi Arabia‘s greatest future competitive threat in the world — until Chavez became president. The sources said that in their view, Mommer was instrumental in persuading Chavez to enact new oil policies that crippled Venezuela‘s potential to threaten Saudi hegemony in the oil markets during the current decade. Chavez and Mommer had their own political and ideological reasons for halting PDVSA’s expansion plans. Riyadh stayed in the background and quietly encouraged Chavez, its new partner, to gut PDVSA and bind Venezuela more tightly to OPEC.

A Stratfor source with OPEC’s Secretariat in Vienna said that when current PDVSA President Ali Rodriguez made his debut as Venezuela‘s envoy to OPEC, he received a standing ovation from his Arab colleagues, led by the Saudi oil minister. “They applauded Rodriguez because they realized he knew nothing about oil, and so would be easy to manipulate,” Stratfor’s OPEC source in Vienna said Oct. 1.

The Man Behind the Scenes

Mommer is a naturalized Venezuelan citizen, who has a bachelor of science degree in mathematics and a doctorate in Social Sciences from Eberhard-KarlUniversity in Tubingen, Germany. He arrived in Venezuela in the 1970s, sources in Caracas say, and for several years was associated with CaracasCentralUniversity‘s Center for Development Studies, called Cendes, a Marxist think tank that opposes free enterprise and advocates strong state controls over economic activities — particularly those associated with strategic industries like oil and natural gas.

From his earliest days in Venezuela, Mommer also reportedly developed close personal ties with Rodriguez and Douglas Bravo. Both Rodriguez and Bravo are former senior leaders of armed leftist insurgencies that sought to establish a revolutionary government in Venezuela during the 1960s, with financial and logistical support from Fidel Castro in Cuba.

In the early to mid-1990s, Mommer started working as an external consultant to PDVSA subsidiary Maraven, and subsequently was brought into PDVSA’s strategic planning department. The individual responsible for persuading then-PDVSA President Luis Giusti to hire Mommer refused Stratfor’s interview requests. Several former PDVSA board members, however, have confirmed that Mummer was a key adviser to Rodriguez — and subsequently to Chavez — beginning in the early to mid-1990s.

After Chavez became president, Mummer was brought into the government as an adviser to Rodriguez. In that capacity, he was a key player in the constitutional and legal reforms that strengthened state control over PDVSA through MEM. For instance, it was Mommer’s idea to sharply raise the royalty payments the government extracts from PDVSA, improving thegovernment’s cash flow but eating away at PDVSA’s investment capital reserves. Mommer also advocated transferring direct control over contracts with foreignoil companies from PDVSA to the MEM.

After Rodriguez became PDVSA’s president in April 2002, Mommer Continued to advise him on oil policy but was transferred to the OPEC Secretariat in Vienna. However, sources say that he is currently living in London, where he appears to be wearing two hats — acting as adviser to PDVSA’s London office on intelligence matters relating to OPEC, and a senior research fellow with the Oxford Institute for Energy Studies. Sources say Mommer is seeking to obtain British citizenship.

Fiction, Truth and Consequences

Chavez claims that his decision four years ago to scrap PDVSA’s capacity-expansion programs in favor of policies to strengthen OPEC and drive up prices has been a spectacular success. Instead of pursuing PDVSA’s strategy of expanding capacity to capture more market share at lower prices and maximize revenues by boosting export volumes, Chavez adopted a strategy of relying on OPEC production controls to raise prices. That strategy has failed, as Stratfor predicted three years ago. The clearest evidence of that failure is Chavez’s Oct. 1 proposal for a higher OPEC price band.

Chavez also claims that, after his purge of more than 18,000 PDVSA employees in the wake of the failed strike, Venezuela now has a more efficient and profitable oil industry. But PDVSA asked the U.S. Securities and Exchange Commission on Oct. 1 for a 30-day extension to

the deadline for its annual report. U.S. law requires all foreign companies with operations in the United States to submit such reports. PDVSA’s report originally was due on June 30, 2003.

Stratfor sources in Caracas say that PDVSA’s external auditors requested more time to complete their work, suggesting that PDVSA’s financial statements are chaotic because the company no longer has sufficient qualified financial personnel. Finally, Chavez frequently insists that PDVSA’s oil production is averaging more than 3.3 million barrels per day. Since he became president, however, PDVSA has lost nearly 1.5 million bpd of crude production capacity becauseChavez axed investments needed to maintain existing capacity to enable thegovernment to use PDVSA’s capital reserves for non-oil expenditures.

The collapse of PDVSA’s crude production capacity is not immediately apparent to the casual observer because foreign companies engaged in operating old marginal oil fields and heavy crude strategic associations are producing about 1 million bpd independent of PDVSA. Nevertheless, by first-quarter 2004 the implosion of PDVSA’s crude production capacity will be too obvious for even Chavez to ignore.

Before Chavez was elected president in December 1998, PDVSA was Embarked on a capacity expansion plan that sought to turn Venezuela into one of the world’s largest oil producers outside the Middle East. If Chavez had not scrapped PDVSA’s expansion plans in early 1999, Venezuela would beproducing 5.5 million bpd of crude oil or more, and by 2010 could expect to be producing 8 million bpd. Most of that oil would be exported to the United States, makingVenezuela the most important U.S. ally in the Western Hemisphere,eclipsing even Mexico

and Canada in exports to the United States.

Chavez further damaged the Venezuelan oil industry with his enactment of a new constitution and hydrocarbons law in 2000-2001, which imposed significant restrictions on private investment in the oil sector and sharply raised energy taxes and royalties. Chavez recently said that all existing PDVSA contracts with foreign oil companies would be reviewed and brought in line withthe new tax, royalty and ownership restrictions his government has imposed on private oil companies.

Who Benefits from PDVSA’s Implosion?

Not Venezuela. Only five years ago, PDVSA was on the road to becoming a global oil producer and exporter comparable to Saudi Arabia. Today PDVSA is a shambles. Its production capacity is dwindling rapidly because natural oil reserve depletion rates are discouraging any

investment in reversing annual capacity declines of 20 percent to 24 percent. Chavez says PDVSA ismore independent today than it has ever been in its 28-year history asanational oil company. But the truth is that Venezuela is increasingly dependent on foreign oil companies to sustain its crude-production levels.

The direct beneficiaries of PDVSA’s implosion are Saudi Arabia, Russia and Mexico.

Saudi Arabia no longer faces a competitive threat from expanding PDVSA production capacity. At a time when Riyadh’s relations with Washington are on shaky ground because of the Saudi monarchy’s ambiguous position on Islamic extremism, PDVSA’s collapse gives the Saudis some unexpected geopolitical leverage in dealing with Washington: Venezuela is in no position to boost its oil exports to the United States in the foreseeable future. The Bush administration might wish to diversify U.S. oil supplies away from the Middle East and Saudi Arabia, but it will be years before Venezuela could even begin to factor into a scenario involving U.S. oil supplies from non-Arab states.

Russia is a big winner too. A Stratfor source that does business with Russian entrepreneurs in the oil and gas industry said Oct. 1 that he attended a recent dinner in Moscow where President Vladimir Putin and several Russian oil magnates toasted Chavez’s folly in crippling PDVSA. In fact, Russia’s crude production is expected to rise by about 900,000 bpd in 2003 — nearlythe same amount of capacity that PDVSA has lost over the last severalyears.

A former PDVSA president agreed that Chavez has been an unexpected boon to Russia’s oil industry. “Thanks to Chavez,” this source said, “Russia is expanding its oil production rapidly and is attracting billions of dollars in foreign investment from companies like ExxonMobil that might otherwise have gone into Venezuela, which is much closer to U.S. gasoline and oil markets than Russia’s oil fields.”

Mexico has benefited as well. So far, the United States’ southern neighbor has been politically incapable of opening its energy sector to foreign investment. This political refusal has undermined Mexico’s economic development, but Mexico’s membership in NAFTA with the United States and Canada partially compensates for it. Close to 90 percent of Mexico’s exports go to the United States.

Don’t Cry for Me, Venezuela

If Chavez had not interrupted PDVSA’s expansion plans in 1999, Venezuela easily would be producing 5.5 million bpd and shipping at least 4 million bpd to the United States. That volume of exports from Venezuela would displace both Mexico and Saudi Arabia in terms of their relative geopolitical importance as foreign oil suppliers to the United States, since they export only about 1.5 million bpd each to the United States. By 2010, Venezuela likely would have been producing 8 million bpd and exporting between 6 million and 7 million bpd to the global superpower.

The unanswered question that bothers some observers of PDVSA’s collapse is why the Bush administration stayed in the background while the Venezuelan national oil company, which arguably has vital long-term strategic importance to U.S. national interests, collapsed. It’s possible that senior officials in the Bush administration don’t assign a high geopolitical priority to Latin America. However, it’s also possible that the oil companies with known links to the Bush administration are waiting for Chavez to finish strangling the golden goose that PDVSA once was, and then get recalled or booted out of power.Then they would be free to come in and pick up the pieces.

Venezuelan President Hugo Chavez put forth a proposal in Caracas on Oct. 1 saying that OPEC’s price band of $22 to $28 per barrel should be raised to between $25 and $32 a barrel. Venezuelan Energy and Mines Minister Rafael Ramirez added separately that Venezuelan officials had requested that the cartel study the issue during OPEC’s recent meeting

in Vienna.

Chavez’s proposal reflects the Venezuelan government’s growing worries about its rapidly deteriorating financial situation. Oil accounts for about three-quarters of Venezuela‘s total exports, nearly 45 percent of government revenues, and about 30 percent of the gross domestic product. However, Venezuelan Central Bank Director Domingo Maza Zavala recently told aNational Assembly hearing in Caracas that fiscal revenues from oil exports have not recovered from a two-month oil strike at Petroleos deVenezuela (PDVSA),in which workers sought Chavez’s resignation. The strike fell apart at the end of January 2003.

Venezuela‘s president might have expected his proposal to generate some discussion in the oil markets and among other OPEC producers. But the oil markets barely reacted to Chavez’s call for a higher OPEC price band, and major OPEC producers like Saudi Arabia simply ignored

Chavez’s suggestion. The markets clearly no longer view Chavez as having much influence on oil prices as long as he doesn’t completely suspend Venezuelan oil production. Chavez will not do this because he needs oil revenues to survive in power.

It’s also clear that Saudi Arabian and Venezuelan geopolitical interests have diverged since their successful alliance in 1999 to drive up global prices by restoring an OPEC production quota system that Riyadh abandoned in 1986. In fact, the 4-year-old Saudi-Venezuelan alliance within OPEC is dead. One of the main reasons it’s over is that Venezuela‘s oil industry is no longer an international competitive threat to Saudi Arabia‘s commercial and geopolitical interests.

Chavez unwittingly saw to that by implementing energy policies that financially crippled PDVSA, and relegating the oil industry’s managerial autonomy to the political dictates of the Energy and Mines Ministry (MEM). One of the key policy advisers who coached Chavez on changing Venezuela‘s oil policies and legislation was Bernard Mommer, a German-born Marxist with well-established ties to the Oxford Institute for Energy Studies in England, which Saudi Arabia and other Arab oil producers and banking interests partially fund.

The Saudi Connection

Stratfor does not believe Saudi Arabia worked through individuals like Mommer to cripple Venezuela‘s oil industry and diminish the threat it posed to Saudi hegemony. This was not a conspiracy, but rather a coincidental convergence of commercial, ideological and geopolitical interests that Saudi Arabia likely quietly manipulated to advance its national interests.

For example, Saudi Arabia wants to protect its hegemony as the largest oil producer in the world, individuals like Mommer are ideologically opposed to private companies owning and controlling strategic national commodities like oil, and Venezuelans who backed Chavez have believed for decades thatforeign oil companies are interested solely in stealing Venezuela’ssub-soil resources. After all, Venezuela‘s century-long experience as an oil producer has

centered on successive governments trying to assert more control over a national oil industry that foreign oil giants like Royal Dutch Shell and the Rockefeller family’s Standard Oil (now ExxonMobil) had been developing since the start of the 20th century.

According to Stratfor sources in London with longtime consulting ties to Saudi Aramco, Saudi Arabian energy officials believed PDVSA and Venezuela was Saudi Arabia‘s greatest future competitive threat in the world — until Chavez became president. The sources said that in their view, Mommer was instrumental in persuading Chavez to enact new oil policies that crippled Venezuela‘s potential to threaten Saudi hegemony in the oil markets during the current decade. Chavez and Mommer had their own political and ideological reasons for halting PDVSA’s expansion plans. Riyadh stayed in the background and quietly encouraged Chavez, its new partner, to gut PDVSA and bind Venezuela more tightly to OPEC.

A Stratfor source with OPEC’s Secretariat in Vienna said that when current PDVSA President Ali Rodriguez made his debut as Venezuela‘s envoy to OPEC, he received a standing ovation from his Arab colleagues, led by the Saudi oil minister. “They applauded Rodriguez because they realized he knew nothing about oil, and so would be easy to manipulate,” Stratfor’s OPEC source in Vienna said Oct. 1.

The Man Behind the Scenes

Mommer is a naturalized Venezuelan citizen, who has a bachelor of science degree in mathematics and a doctorate in Social Sciences from Eberhard-KarlUniversity in Tubingen, Germany. He arrived in Venezuela in the 1970s, sources in Caracas say, and for several years was associated with CaracasCentralUniversity‘s Center for Development Studies, called Cendes, a Marxist think tank that opposes free enterprise and advocates strong state controls over economic activities — particularly those associated with strategic industries like oil and natural gas.

From his earliest days in Venezuela, Mommer also reportedly developed close personal ties with Rodriguez and Douglas Bravo. Both Rodriguez and Bravo are former senior leaders of armed leftist insurgencies that sought to establish a revolutionary government in Venezuela during the 1960s, with financial and logistical support from Fidel Castro in Cuba.

In the early to mid-1990s, Mommer started working as an external consultant to PDVSA subsidiary Maraven, and subsequently was brought into PDVSA’s strategic planning department. The individual responsible for persuading then-PDVSA President Luis Giusti to hire Mommer refused Stratfor’s interview requests. Several former PDVSA board members, however, have confirmed that Mummer was a key adviser to Rodriguez — and subsequently to Chavez — beginning in the early to mid-1990s.

After Chavez became president, Mummer was brought into the government as an adviser to Rodriguez. In that capacity, he was a key player in the constitutional and legal reforms that strengthened state control over PDVSA through MEM. For instance, it was Mommer’s idea to sharply raise the royalty payments the government extracts from PDVSA, improving thegovernment’s cash flow but eating away at PDVSA’s investment capital reserves. Mommer also advocated transferring direct control over contracts with foreignoil companies from PDVSA to the MEM.

After Rodriguez became PDVSA’s president in April 2002, Mommer Continued to advise him on oil policy but was transferred to the OPEC Secretariat in Vienna. However, sources say that he is currently living in London, where he appears to be wearing two hats — acting as adviser to PDVSA’s London office on intelligence matters relating to OPEC, and a senior research fellow with the Oxford Institute for Energy Studies. Sources say Mommer is seeking to obtain British citizenship.

Fiction, Truth and Consequences

Chavez claims that his decision four years ago to scrap PDVSA’s capacity-expansion programs in favor of policies to strengthen OPEC and drive up prices has been a spectacular success. Instead of pursuing PDVSA’s strategy of expanding capacity to capture more market share at lower prices and maximize revenues by boosting export volumes, Chavez adopted a strategy of relying on OPEC production controls to raise prices. That strategy has failed, as Stratfor predicted three years ago. The clearest evidence of that failure is Chavez’s Oct. 1 proposal for a higher OPEC price band.

Chavez also claims that, after his purge of more than 18,000 PDVSA employees in the wake of the failed strike, Venezuela now has a more efficient and profitable oil industry. But PDVSA asked the U.S. Securities and Exchange Commission on Oct. 1 for a 30-day extension to

the deadline for its annual report. U.S. law requires all foreign companies with operations in the United States to submit such reports. PDVSA’s report originally was due on June 30, 2003.

Stratfor sources in Caracas say that PDVSA’s external auditors requested more time to complete their work, suggesting that PDVSA’s financial statements are chaotic because the company no longer has sufficient qualified financial personnel. Finally, Chavez frequently insists that PDVSA’s oil production is averaging more than 3.3 million barrels per day. Since he became president, however, PDVSA has lost nearly 1.5 million bpd of crude production capacity becauseChavez axed investments needed to maintain existing capacity to enable thegovernment to use PDVSA’s capital reserves for non-oil expenditures.

The collapse of PDVSA’s crude production capacity is not immediately apparent to the casual observer because foreign companies engaged in operating old marginal oil fields and heavy crude strategic associations are producing about 1 million bpd independent of PDVSA. Nevertheless, by first-quarter 2004 the implosion of PDVSA’s crude production capacity will be too obvious for even Chavez to ignore.

Before Chavez was elected president in December 1998, PDVSA was Embarked on a capacity expansion plan that sought to turn Venezuela into one of the world’s largest oil producers outside the Middle East. If Chavez had not scrapped PDVSA’s expansion plans in early 1999, Venezuela would beproducing 5.5 million bpd of crude oil or more, and by 2010 could expect to be producing 8 million bpd. Most of that oil would be exported to the United States, makingVenezuela the most important U.S. ally in the Western Hemisphere,eclipsing even Mexico

and Canada in exports to the United States.

Chavez further damaged the Venezuelan oil industry with his enactment of a new constitution and hydrocarbons law in 2000-2001, which imposed significant restrictions on private investment in the oil sector and sharply raised energy taxes and royalties. Chavez recently said that all existing PDVSA contracts with foreign oil companies would be reviewed and brought in line withthe new tax, royalty and ownership restrictions his government has imposed on private oil companies.

Who Benefits from PDVSA’s Implosion?

Not Venezuela. Only five years ago, PDVSA was on the road to becoming a global oil producer and exporter comparable to Saudi Arabia. Today PDVSA is a shambles. Its production capacity is dwindling rapidly because natural oil reserve depletion rates are discouraging any

investment in reversing annual capacity declines of 20 percent to 24 percent. Chavez says PDVSA ismore independent today than it has ever been in its 28-year history asanational oil company. But the truth is that Venezuela is increasingly dependent on foreign oil companies to sustain its crude-production levels.

The direct beneficiaries of PDVSA’s implosion are Saudi Arabia, Russia and Mexico.

Saudi Arabia no longer faces a competitive threat from expanding PDVSA production capacity. At a time when Riyadh’s relations with Washington are on shaky ground because of the Saudi monarchy’s ambiguous position on Islamic extremism, PDVSA’s collapse gives the Saudis some unexpected geopolitical leverage in dealing with Washington: Venezuela is in no position to boost its oil exports to the United States in the foreseeable future. The Bush administration might wish to diversify U.S. oil supplies away from the Middle East and Saudi Arabia, but it will be years before Venezuela could even begin to factor into a scenario involving U.S. oil supplies from non-Arab states.

Russia is a big winner too. A Stratfor source that does business with Russian entrepreneurs in the oil and gas industry said Oct. 1 that he attended a recent dinner in Moscow where President Vladimir Putin and several Russian oil magnates toasted Chavez’s folly in crippling PDVSA. In fact, Russia’s crude production is expected to rise by about 900,000 bpd in 2003 — nearlythe same amount of capacity that PDVSA has lost over the last severalyears.

A former PDVSA president agreed that Chavez has been an unexpected boon to Russia’s oil industry. “Thanks to Chavez,” this source said, “Russia is expanding its oil production rapidly and is attracting billions of dollars in foreign investment from companies like ExxonMobil that might otherwise have gone into Venezuela, which is much closer to U.S. gasoline and oil markets than Russia’s oil fields.”

Mexico has benefited as well. So far, the United States’ southern neighbor has been politically incapable of opening its energy sector to foreign investment. This political refusal has undermined Mexico’s economic development, but Mexico’s membership in NAFTA with the United States and Canada partially compensates for it. Close to 90 percent of Mexico’s exports go to the United States.

Don’t Cry for Me, Venezuela

If Chavez had not interrupted PDVSA’s expansion plans in 1999, Venezuela easily would be producing 5.5 million bpd and shipping at least 4 million bpd to the United States. That volume of exports from Venezuela would displace both Mexico and Saudi Arabia in terms of their relative geopolitical importance as foreign oil suppliers to the United States, since they export only about 1.5 million bpd each to the United States. By 2010, Venezuela likely would have been producing 8 million bpd and exporting between 6 million and 7 million bpd to the global superpower.

The unanswered question that bothers some observers of PDVSA’s collapse is why the Bush administration stayed in the background while the Venezuelan national oil company, which arguably has vital long-term strategic importance to U.S. national interests, collapsed. It’s possible that senior officials in the Bush administration don’t assign a high geopolitical priority to Latin America. However, it’s also possible that the oil companies with known links to the Bush administration are waiting for Chavez to finish strangling the golden goose that PDVSA once was, and then get recalled or booted out of power.Then they would be free to come in and pick up the pieces.